The Quarterly Review of Economics and Finance

Health care expenditures have been increasing sharply in the last ten years, with spending on mental health disorders being particularly prominent. Over the same time period, a number of new antipsychotic medications have been added to the armamentarium for treatment of persons diagnosed with schizophrenia. Due in part to the sharply increased expenditures by Medicaid on mental health disorders such as schizophrenia, controversies have arisen as to the use of these more costly innovative medications, particularly their impact on the annualized cost of treating patients.Using Medicaid data on 12,864 person years from two counties in Florida over the 1994-95 to 1999-2000 time period, in this study we address three issues: (i) On a per person year basis, what is happening over time to the mental health-related costs of treating schizophrenia? (ii) How is the composition and quality of care changing over time? and (iii) Holding quality of care constant, on a per person year basis, by how much are the costs for the ongoing treatment of schizophrenia changing?We find that unadjusted for changes in quality of care over time, the annualized costs for the ongoing treatment of schizophrenia per person have increased about 0.5% per year. The composition of treatments for schizophrenia has changed substantially over this six-year time period, toward more intensive use of atypical antipsychotics, and away from psychosocial treatments. Holding treatment quality type and patient characteristics constant over time, mean treatment costs have fallen about 5.5% per year between 1994-1995 and 1999-2000.

Health Maintenance Organizations (HMOs) have emerged as a major vehicle to reduce transaction costs associated with defining the limits of health insurance coverage and to provide appropriate provider incentives. This article explains the heterogeneous set of incentives used by HMOs to reimburse providers and performs empirical tests of their effectiveness. The empirical analyses reveal that utilization of health care services is reduced when (1) physician compensation is based on salary or capitation arrangements rather than some measure of output; (2) bonuses and paybacks are based on individual rather than group performance; and (3) when the HMO operates as a proprietary (for-profit) organization. Utilization is not significantly affected by incentives placed on the hospital. Finally, physician ownership of the HMO was found to lead to higher levels of utilization.

On September 11, 2001, terrorists launched a devastating attack against the United States using commercial airliners loaded with jet fuel as weapons. Using the multivariate regression model methodology, we investigate the reaction of airline stock prices to the attack. This study differs from other studies of market reactions to unanticipated, catastrophic events due to the effect the event had on the U.S. economy and society. We examine both the market reaction on September 17, the first trading day after the attack, and the period immediately thereafter when the Air Transportation Safety and System Stabilization Act was passed by Congress and signed into law (September 18–24, 2001). Our findings support the hypothesis of rational pricing and suggest that the market differentiated among various air-transport firms. Cross-sectional results for the September 17 abnormal returns suggest that the market was concerned about the increased likelihood of financial distress in the wake of the attacks and distinguished between airlines based on the level of their cash reserves. With respect to the Air Transportation Safety and System Stabilization Act, we find evidence that the market believed the major airlines benefited, while the small airlines did not.

Between 1850 and 1860 the total “pauper rate”-the number of individuals receiving public assistance per 1,000 population-increased from 5.8 to 10.2. We explore the determinants of the rise in antebellum pauperism using previously enexploited archival data. Changing labor market conditions, urbanization, and immigration led to a marked increase in the demand for public assistance. Antebellum taxpayers, however, were unwilling to maintain the generosity of relief at existing levels in the face of the rise in demand.

Using annual deviations between the stock market and accounting valuations of major banks, this paper constructs synthetic century-long time series for the intangible safety-net capital generated by reporting and supervisory policies in Canada and the U.S. The credibility of the modeling exercise that produces these synthetic time series is supported by evidence that, in each country, all sustained surges in the value of estimated safety-net capital correlate in appropriate ways with regulatory events and crisis pressures. We invite others to test the qualitative usefulness of our framework by applying the method to data from other countries.

We investigate whether an aggregate health production function can help to explain the annual time-series behavior of U.S. longevity since 1960. We view longevity as the output of the health production function, and output fluctuations as the consequence of fluctuations in medical inputs (expenditure) and technology. The empirical analysis provides support for the hypothesis that both medical innovation (in the form of new drug approvals) and public health expenditure contributed to longevity increase during the period 1960–2001. The estimates imply that the public health expenditure needed to gain one life-year is about US$ 9640, and that the pharmaceutical R&D expenditure needed to gain one life-year is about US$ 926.

Econometric investigation of the Immigration Absorption Survey for the years 1969-72 suggests that internal migration of immigrants during their first year in Israel is related only to job-seeking. Thereafter, internal migration is interwoven with the process of housing. Finally, the periphery loses ground to the center in its ability to attract immigrants the longer the immigrants are in Israel.

In their seminal research on the determinants of capital structure choice using structural equation modeling (SEM), Titman and Wessels [Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. Journal of Finance, 43, 1–19] obtain weak results and hence call for further investigation. We apply a Multiple Indicators and Multiple Causes (MIMIC) model, with refined indicators, to a pooled sample for the period 1988–2003 and find more convincing results than those obtained by Titman and Wessels. With the capital structure measured simultaneously by the ratios of long-term debt, short-term debt, and convertible debt to the market value of equity, our results show that growth is the most important determinant of capital structure choice, followed in order by profitability, collateral value, volatility, non-debt tax shields, and uniqueness. Moreover, we find that long-term debt is the most important proxy of capital structure, followed by short-term debt, and then convertible debt.

This paper analyzes changes in poverty and inequality in the Middle East and North Africa. It finds that the structural relationship between poverty reduction, income growth and distribution is the same for MENA and other developing economies. Prior to 1985 rapid growth sharply reduced poverty. After 1985, despite very low income growth, a rising share of income accruing to the lowest quintile meant that the average income of the poor rose more rapidly than that of the non-poor. These unusual poverty dynamics were primarily due to international migration. Remittances both increased per capita incomes in labor exporting countries and increased the share of income accruing to the poor.

This paper examines the impact of working wives on the distribution of family earnings at various life-cycle stages, with particular emphasis on comparisons between the early 1970s and the early 1990s. The results show that in both time periods, the actual gap between rich and poor families is narrower than if all wives were out of the labor force, and that this equalizing influence of female employment is least pronounced when a child under age six is present in the household. At the same time, the equalizing impact of the wives’ contribution is found to have become substantially more pronounced during the 1990s, partly because of a decrease over the past two decades in the dispersion of female earnings relative to male earnings.

This article compares assimilation rates of Mexican and white non-Hispanic immigrants in California and Texas in the 1980s, within and across entry cohorts. Using wage functions estimated with 1980 and 1990 Census data, wages are predicted for each immigrant entry cohort and for natives in each year, at a given experience and education level. Mexican immigrants who arrived in the 1970s experienced wage growth relative to comparable natives ranging from 7% to 21%, depending on state and gender; that of non-Hispanic white immigrants ranged from −1% to +6%. Both groups' relative wages grew faster in California than in Texas, and men's grew faster than women's. Across-cohort deterioration between the 1970s and 1980s entrants relative to natives averaged 10% for Mexicans and 4% for non-Hispanic whites.

An inventory-theoretic approach suggests that deposit rate deregulation will increase the interest-elasticity of the demand for money if deposit rates adjust to changes in market rates with a lag. This hypothesis is tested using a short-run nominal adjustment specification for M1, M1A and M2. Sector data is also used to provide independent tests based on the impact of deregulation on each sector. Empirical results cannot reject the hypothesis that deposit rate deregulation has increased the interest-elasticity of M1, M1A and M2 while business sector demand deposits have been unaffected. Deregulation has loosened the relationship between the monetary aggregates and income, making it more difficult to evaluate the impact of a target on macroeconomic goals.

The paper uses 1980 to 2000 Panel Study of Income Dynamics (PSID) data to study the short-run effect of a stock market appreciation on U.S. household income inequality. Fixed-effects regressions suggest that a stock market appreciation raises the incomes of stockholder households more than non-stockholder households. The Gini coefficients derived from the regressions reveal a perceptible but rather volatile increase that can be attributed to the stock market appreciation, especially for the latter parts of the 1980s and 1990s. When averaged by decade, the stock market appreciation raises the Gini coefficient by about 2% for the 1980s and by 3% for the 1990s.

This paper addresses the question of whether and how easy monetary policy may lead to excesses in financial and real asset markets and ultimately result in financial dislocation. It presents evidence suggesting that periods when short-term interest rates were persistently and significantly below what Taylor rules would prescribe are correlated with increases in asset prices, especially as regards housing, though no systematic effects are identified on equity markets. Significant asset price increases, however, can also occur when interest rates are in line with Taylor rules, possibly associated with periods of financial deregulation and/or innovation. Finding also some support for a link of countries' pre-crisis monetary stance with the extent to which their financial sectors were hit during the recent crisis, the paper argues that accommodating monetary policy over the period 2002-2005, probably in combination with rapid financial market innovation, would, in retrospect, seem to have been among the factors behind the run-up in asset prices and financial imbalances - the (partial) unwinding of which helped trigger the recent financial market crisis. --

We examine the long-term performance and characteristics of firms that went public from 1981 to 2005. We find that long-run returns declined and the proportion of failed and failing firms increased with underwriter reputation. The IPOs marketed by the more reputable underwriters were more likely to fail or be failing in the post-1980s period, but were still better than those of less reputable counterparts. The characteristics of the firms marketed by the more reputable underwriters did not appear to change substantially from decade to decade. We conclude that external market forces rather than conscious changes by underwriters caused the shift in the relation between failure rates and underwriter reputation from the 1980s to the subsequent period. We also find the "flip" in relationship between underwriter reputation and initial IPO return identified in the literature disappears after controlling for additional factors.

The growth of health care costs and expenditures recently led to suggestions for innovations that would affect demand for health care. However, supply side issues were largely ignored in the debate despite the fact that the American Medical Association has controlled entry since it was granted that power by legislators early in this century. We consider the supply side of the market for physicians' services over 1983-91. Our estimated index of market power indicates nontrivial power among physicians. This suggests that conventional policy tools could reduce costs in this market. This, in turn, could effectively lower insurance premiums.

This article analyzes the impact of the EU on Portugal’s economy, how the EU rules and regulations have affected the country’s policy-making style, and the impact of EU’s transfer of resources. It shows that Portugal has greatly benefitted from joining the EU: the rapid exposure to foreign competition has forced modernization of many sectors; there was a retreat of the state from direct involvement in economic activities and the creation of a number of new export-oriented sectors, and EU transfers were effectively applied in modernizing the country’s infrastructure. However, increased productivity has not improved equity from both an income distribution point of view and from regional income concentration.

This study examines the performance and ownership structure characteristics of financial institutions that chose to aggressively expand by acquiring other institutions. The “wealth maximization hypothesis” posits that in an era of deregulation, the most efficient institutions will acquire the less efficient, thereby creating value and benefiting shareholders. Conversely, the “incentive conflict hypothesis” argues that a large number of acquisitions is a symptom of managers pursuing their own self interests. The empirical results are consistent with the wealth-maximization hypothesis for acquirers that have at least one large outside blockholder and when acquisition activity is measured by assets acquired. But, when acquisition activity is measured by the number of acquisitions, our results fail to support the wealth-maximization hypothesis. Together, these results imply that benefits are more likely to be created when the expansion strategy is implemented by making large acquisitions rather than numerous small acquisitions.Jel classification: G21, G28, G34

This paper reexamines the status of women in the academic labor market relative to men to determine how much progress has been made in achieving equity. Two questions will be addressed here: (1) do men and women have equal access to faculty employment in higher education, and (2) are they equally successful with regard to traditional career goals and compensation? Analyses are conducted on the educational attainment of women, their representation among faculty, their time allocation and research productivity, and their success in academia as represented by their rank attainment and earnings. While the results show that women have made considerable strides in entering the academic labor market, there is still an unexplained gap between men and women in terms of their earnings and career progression.